OneWater Marine Inc. — Form 10-Q Summary
Reporting period: Second fiscal quarter and six months ended March 31, 2022; filed May 10, 2022. Financial figures below are in U.S. dollars. OneWater operates a marine retail business spanning boat sales, finance and insurance, service, parts, and storage, with 75 retail locations and 10 distribution centers/warehouses at quarter-end.
Financial performance
| Metric | Three months ended March 31, 2022 | Prior-year quarter | Six months ended March 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $442.1 million | $329.6 million | $778.4 million | $543.7 million |
| Gross profit / margin | $142.5 million / 32.2% | $88.8 million / 26.9% | $243.5 million / 31.3% | $141.2 million / 26.0% |
| Operating income / margin | $59.4 million / 13.4% | $38.7 million / 11.7% | $90.7 million / 11.7% | $54.7 million / 10.1% |
| Net income | $42.4 million | $30.6 million | $65.8 million | $42.4 million |
| Net income attributable to OneWater Inc. | $36.3 million | $20.5 million | $56.3 million | $28.3 million |
| Diluted EPS | $2.54 | $1.83 | $4.02 | $2.55 |
| Adjusted EBITDA (non-GAAP) | $66.1 million | $40.1 million | $107.1 million | $56.8 million |
Quarterly revenue rose 34.1%; same-store sales increased 8.0%. Six-month revenue rose 43.2%; same-store sales increased 15.8%. Growth reflected acquisitions, higher average boat prices and favorable product mix, and increased service, parts and other sales. Management attributed stronger boat margins in part to dynamic pricing and industry-wide inventory constraints. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP results.
In the quarter, new boat revenue was $290.0 million, pre-owned boat revenue $75.9 million, finance and insurance income $14.9 million, and service, parts and other revenue $61.3 million. Service, parts and other revenue grew 177.6%, substantially reflecting the T-H Marine acquisition and increased activity in related services.
- Cash flow, six months: Operating cash use was $43.4 million, versus $30.6 million provided in the prior-year period. Investing cash use was $296.9 million, including $288.9 million of cash used for acquisitions. Financing provided $355.3 million, primarily through additional long-term and floor-plan borrowings. Cash and restricted cash at period-end was $89.0 million; unrestricted cash was $83.0 million.
- Liquidity and balance sheet: Current assets were $515.8 million and current liabilities $439.0 million at March 31, 2022. Inventory was $293.2 million, up from $143.9 million at September 30, 2021. Floor-plan borrowings were $254.9 million, with $245.1 million of stated borrowing capacity available.
- Debt: Total debt outstanding was $344.3 million, including $297.9 million under the Truist term loan and $40.0 million under its revolving facility; the balance included vehicle and seller notes. The company also had $254.9 million of floor-plan debt. The Truist facilities mature in 2025; the inventory financing facility expires in December 2023. The company reported compliance with debt covenants at quarter-end.
Material changes and notable items
- The company completed six acquisitions in the first half of fiscal 2022, including T-H Marine, Quality Boats, JIF Marine and YakGear. Aggregate consideration was approximately $312.2 million, funded with cash, seller notes, contingent consideration and $6.8 million in Class A shares. These acquisitions contributed $86.6 million to six-month revenue, according to the filing.
- Acquisition activity expanded the balance sheet: goodwill increased to $313.5 million from $168.5 million at September 30, 2021, and identifiable intangible assets rose to $231.1 million from $85.3 million.
- Six-month SG&A increased 61.7% to $134.6 million; as a share of revenue it rose to 17.3% from 15.3%, mainly due to personnel and variable compensation costs. Six-month contingent-consideration fair-value expense was $7.9 million, versus $0.4 million in the prior-year period.
- On March 30, 2022, the board authorized a share repurchase program of up to $50 million; no shares had been repurchased by quarter-end.
- On April 1, 2022, after the reporting date, the company acquired Denison Yachting for approximately $35.6 million in cash and 253,840 Class A shares valued at approximately $9.7 million, subject to customary adjustments.
Outlook, risks and contingencies
The filing gives no quantified revenue, earnings or margin guidance. Management said it believes available operating cash flow, credit facilities and potential future debt or equity proceeds will be adequate for operations, share repurchases, essential capital expenditures and acquisitions for the next 12 months and beyond. Management expects acquisitions to remain part of its growth strategy. Results are seasonal, with demand generally strongest in the third and fourth fiscal quarters; winter periods outside Florida tend to bring lower sales and higher inventory and floor-plan needs.
- Management described demand as resilient but noted COVID-related supply-chain constraints and industry-wide shortages of boats, engines and marine parts. Future results remain exposed to changes in consumer demand, economic conditions, inflation, interest and fuel costs, and supplier availability.
- Seasonality, severe weather, hurricanes and regional conditions can affect sales, inventory and operations. The company also depends on manufacturer relationships and dealer agreements; its top ten new-boat brands represented 43.8% of six-month revenue.
- Borrowings carry interest-rate exposure, and the company does not hedge that exposure. The filing estimates a 100-basis-point increase would raise annualized interest expense by approximately $2.5 million on floor-plan debt and $2.1 million on the Truist term loan, based on the stated balances and assumptions.
- Contingent consideration was $35.2 million at March 31, 2022 and is based on Level 3 estimates. The tax receivable agreement liability was approximately $46.2 million; payments generally represent 85% of specified tax savings and may accelerate in certain circumstances, including some change-of-control events.
- Management said pending litigation was not reasonably expected to have a material adverse effect, while acknowledging outcomes cannot be predicted. No material changes to previously disclosed risk factors were reported other than the governance-related matters described in the filing.
Important facts for investors to verify
- How much of revenue and earnings growth came from same-store performance versus acquisitions, and whether recent gross-margin gains persist as supply and pricing conditions change.
- Whether inventory growth, operating cash outflow and increased floor-plan and term borrowings remain manageable through seasonal demand fluctuations.
- The realized performance and integration costs of recent acquisitions, including the preliminary purchase-price valuations and contingent-consideration assumptions.
- The financial effect of the April 2022 Denison Yachting acquisition and the company’s use of the newly authorized $50 million repurchase program.
- Exposure to floating interest rates, covenant headroom, and any potential tax receivable agreement payments or acceleration obligations.